Valuing improvements in urban water security: evidence of heterogeneity derived from a latent class model for eastern Australia

• Published in: Applied economics 2018-07, Vol.50 (31), p.3364-3375
• Main Authors: Cooper, Bethany, Burton, Michael, Crase, Lin
• Format: Article
• Language: English
• Subjects: Attributes; Decision making models; Depletion; Drought; Economic analysis; Economic theory; Experiments; Frame analysis; Households; Imposition; Latent class analysis; Market value; Rationing; Urban areas; Water conservation; Water shortages; Water supply; Willingness to pay
• ISSN: 0003-6846; 1466-4283
• DOI: 10.1080/00036846.2017.1420896

In many Australian cities the response to drought has included the imposition of mandatory constraints over how water is used by households, often termed 'water restrictions'. A similar rationing approach has been witnessed in California's recent drought. The aim of water restrictions is to slow the depletion of water storage but restrictions have also been criticized for the costs they impose on specific water users. In order to gain insight into the potential magnitude of the cost of water restrictions, this study uses a choice experiment to investigate the non-market values for specific attributes associated with the outcomes of drought restrictions. This information was sought to understand the community's willingness to pay for attributes related to the extent, frequency and duration of water restrictions. The article reports a latent class choice model for a major city in eastern Australia and investigates heterogeneity in preferences towards increasing water availability during drought. This study departs from the existing literature by conducting the choice experiment in a context where water supply is relatively abundant. This unique framing of the choice experiment allows for a useful comparison with existing studies and also raises challenges about the interpretation of the data for planning purposes.